Executive Briefings

For Pharma, One Supply Chain Doesn't Fit All

Companies dream of one cohesive supply chain that can harmonize information and business processes worldwide. But what if your customers' needs in regional markets are so different as to make that dream impossible?

The pharmaceuticals giant Pfizer Inc. would like nothing more than to build a standardized global supply network from internal resources. Too bad local regulations won't permit it.

Jim Cafone, vice president of supply chain network services, compares his industry to the consumer electronics sector. Say you're an American traveling in Germany, and you drop your iPhone and crack the screen. You can quickly remedy the problem by going to any local Apple Store, because the product is the same in all markets. Now try filling your American-issued prescription for Lipitor, one of Pfizer's biggest-selling products, at a Germany pharmacy. You won't get a single pill until you've seen a doctor and fulfilled that country's regulatory requirements.

So how does a pharmaceutical manufacturer like Pfizer cope? "You end up spending a lot of time making a lot of products that are very specific for local markets," said Cafone.

Transactions that would be relatively straightforward in other industries are anything but that in the world of pharma. The technical details of moving product between manufacturing sites can drag out the process to as long as seven years. "That's all regulatory-driven," said Cafone, speaking at the recent Gartner Supply Chain Executive Conference in Palm Desert, Calif. "It's a highly inflexible, highly rigid network."

Regulatory questions aside, Pfizer has a devilishly complex supply chain. With 2011 revenues of around $65bn, it's really an amalgamation of more than 25 companies. Growth has been especially steep over the last decade, capped by the $68bn acquisition of Wyeth. Cafone is himself a Wyeth veteran, having helped to oversee what was already a complex organizational structure before it was folded into that of Pfizer.

Today, Pfizer's supply chain consists of more than 35,000 SKUs, 3,000 formulations and 600 major products. The company sources from more than 500 suppliers and runs 89 manufacturing sites and 175 market logistics centers.

Sales are in 150 countries, and customers' needs vary widely. Growth is flat in mature markets such as North America, Western Europe and Japan, forcing Pfizer to adopt a marketing strategy based primarily on cost. The expiration of patents and the emergence of cheap generics in those regions are putting the squeeze on margins.

It's a completely different picture in emerging markets. There, Pfizer is wrestling with logistics constraints such as a lack of basic infrastructure and adequate systems for handling temperature-sensitive product. Yet the potential for growth is far greater than in more-established sales areas.

All of which has caused Pfizer to embrace the practice of customer segmentation. It allows the company to fine-tune its marketing strategy to emphasize agility, cost, service or a combination of the three, depending on local requirements. Pfizer can toggle between a supply chain based on a high degree of intellectual property and customer care, and one that competes with generic drugs through maximum efficiency and cost-control.

Back to the Lipitor example. In 2011, the product generated revenues of $9.6bn. It accounted for more than 800 SKUs, manufactured at nine sites in 12 basic formulations. The sales side is equally complex. Sixty-one markets focus on service considerations, with customers assessed a steeper price in exchange for high fill rates. Ten are dominated by generics, where cost is the number-one concern. And 13 are emerging markets in which agility is essential. "You come up with a whole different series of [sales criteria], based on how you compete," said Cafone.

Once Pfizer was able to differentiate its marketing and sales strategy, it could move to consolidate and streamline other supply-chain activities. Basic services were placed under the umbrella of Pfizer Global Supply, the company's consolidated internal and external supply network. "I'm a big believer in shared platforms," said Cafone, "and the ability to drive as much homogeneity as possible."

Alongside the push for market segmentation came an embrace of supply-chain "virtualization" - a trendier term, I guess, for outsourcing. Both Pfizer and Wyeth were long-accustomed to having key links of the supply chain - including research and development, manufacturing and logistics - residing in-house. In keeping with the trend in multiple industries, the combined company began shedding itself of any function that it didn't view as a core competency.

To make the setup work, Pfizer needed visibility of product, inventory and information among all of its newly appointed supply-chain partners. But achieving that level of connectivity was no easy task. It was hard enough to obtain basic milestones on purchases and production within the company's four walls. "Imagine then trying to get information from people outside," Cafone said.

The answer lay at hand, in the new wave of social networking tools. Suppliers and other external partners were invited to become part of a virtual, online community, with profiles available to the entire network. In essence, all of Pfizer's trade lanes are now visible through the cloud, via a single, device-independent application which links up with major transportation providers.

After about 18 months of deploying the new technology, Pfizer was able to reduce its provider base by 70 percent, while reducing 400 accessorial charges to around 30. All of that was possible despite the fact that the company isn't an especially big buyer of transportation; it spends only around $400m a year.

"We ship a lot of value, not weight," explained Cafone. "We don't have as much leverage [with carriers] as some." Nevertheless, Pfizer is able to maintain tight control over the physical flow of product, including items that are shipped under strict, temperature-controlled conditions.

The company has achieved a similar level of continuity on the production side, deploying a "multi-level" enterprise resource planning application which accounts for the differences among suppliers and markets. As a result, new partners and acquisitions can be integrated into the network with a minimum of fuss. Finally, the company has managed to create a single document-management system to support global research and development.

There's a lot more work ahead. Cafone said Pfizer is tooling up for "hyper-segmentation" on the customer side, while continuing to streamline and centralize processes further up the supply chain. The ultimate goal, he said, is "true demand sensing." Which, for a highly regulated, multibillion-dollar pharma company with a universe of external partners, is a lot easier said than done.

- Robert J. Bowman, SupplyChainBrain

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Companies dream of one cohesive supply chain that can harmonize information and business processes worldwide. But what if your customers' needs in regional markets are so different as to make that dream impossible?

The pharmaceuticals giant Pfizer Inc. would like nothing more than to build a standardized global supply network from internal resources. Too bad local regulations won't permit it.

Jim Cafone, vice president of supply chain network services, compares his industry to the consumer electronics sector. Say you're an American traveling in Germany, and you drop your iPhone and crack the screen. You can quickly remedy the problem by going to any local Apple Store, because the product is the same in all markets. Now try filling your American-issued prescription for Lipitor, one of Pfizer's biggest-selling products, at a Germany pharmacy. You won't get a single pill until you've seen a doctor and fulfilled that country's regulatory requirements.

So how does a pharmaceutical manufacturer like Pfizer cope? "You end up spending a lot of time making a lot of products that are very specific for local markets," said Cafone.

Transactions that would be relatively straightforward in other industries are anything but that in the world of pharma. The technical details of moving product between manufacturing sites can drag out the process to as long as seven years. "That's all regulatory-driven," said Cafone, speaking at the recent Gartner Supply Chain Executive Conference in Palm Desert, Calif. "It's a highly inflexible, highly rigid network."

Regulatory questions aside, Pfizer has a devilishly complex supply chain. With 2011 revenues of around $65bn, it's really an amalgamation of more than 25 companies. Growth has been especially steep over the last decade, capped by the $68bn acquisition of Wyeth. Cafone is himself a Wyeth veteran, having helped to oversee what was already a complex organizational structure before it was folded into that of Pfizer.

Today, Pfizer's supply chain consists of more than 35,000 SKUs, 3,000 formulations and 600 major products. The company sources from more than 500 suppliers and runs 89 manufacturing sites and 175 market logistics centers.

Sales are in 150 countries, and customers' needs vary widely. Growth is flat in mature markets such as North America, Western Europe and Japan, forcing Pfizer to adopt a marketing strategy based primarily on cost. The expiration of patents and the emergence of cheap generics in those regions are putting the squeeze on margins.

It's a completely different picture in emerging markets. There, Pfizer is wrestling with logistics constraints such as a lack of basic infrastructure and adequate systems for handling temperature-sensitive product. Yet the potential for growth is far greater than in more-established sales areas.

All of which has caused Pfizer to embrace the practice of customer segmentation. It allows the company to fine-tune its marketing strategy to emphasize agility, cost, service or a combination of the three, depending on local requirements. Pfizer can toggle between a supply chain based on a high degree of intellectual property and customer care, and one that competes with generic drugs through maximum efficiency and cost-control.

Back to the Lipitor example. In 2011, the product generated revenues of $9.6bn. It accounted for more than 800 SKUs, manufactured at nine sites in 12 basic formulations. The sales side is equally complex. Sixty-one markets focus on service considerations, with customers assessed a steeper price in exchange for high fill rates. Ten are dominated by generics, where cost is the number-one concern. And 13 are emerging markets in which agility is essential. "You come up with a whole different series of [sales criteria], based on how you compete," said Cafone.

Once Pfizer was able to differentiate its marketing and sales strategy, it could move to consolidate and streamline other supply-chain activities. Basic services were placed under the umbrella of Pfizer Global Supply, the company's consolidated internal and external supply network. "I'm a big believer in shared platforms," said Cafone, "and the ability to drive as much homogeneity as possible."

Alongside the push for market segmentation came an embrace of supply-chain "virtualization" - a trendier term, I guess, for outsourcing. Both Pfizer and Wyeth were long-accustomed to having key links of the supply chain - including research and development, manufacturing and logistics - residing in-house. In keeping with the trend in multiple industries, the combined company began shedding itself of any function that it didn't view as a core competency.

To make the setup work, Pfizer needed visibility of product, inventory and information among all of its newly appointed supply-chain partners. But achieving that level of connectivity was no easy task. It was hard enough to obtain basic milestones on purchases and production within the company's four walls. "Imagine then trying to get information from people outside," Cafone said.

The answer lay at hand, in the new wave of social networking tools. Suppliers and other external partners were invited to become part of a virtual, online community, with profiles available to the entire network. In essence, all of Pfizer's trade lanes are now visible through the cloud, via a single, device-independent application which links up with major transportation providers.

After about 18 months of deploying the new technology, Pfizer was able to reduce its provider base by 70 percent, while reducing 400 accessorial charges to around 30. All of that was possible despite the fact that the company isn't an especially big buyer of transportation; it spends only around $400m a year.

"We ship a lot of value, not weight," explained Cafone. "We don't have as much leverage [with carriers] as some." Nevertheless, Pfizer is able to maintain tight control over the physical flow of product, including items that are shipped under strict, temperature-controlled conditions.

The company has achieved a similar level of continuity on the production side, deploying a "multi-level" enterprise resource planning application which accounts for the differences among suppliers and markets. As a result, new partners and acquisitions can be integrated into the network with a minimum of fuss. Finally, the company has managed to create a single document-management system to support global research and development.

There's a lot more work ahead. Cafone said Pfizer is tooling up for "hyper-segmentation" on the customer side, while continuing to streamline and centralize processes further up the supply chain. The ultimate goal, he said, is "true demand sensing." Which, for a highly regulated, multibillion-dollar pharma company with a universe of external partners, is a lot easier said than done.

- Robert J. Bowman, SupplyChainBrain

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